Friday, 10 February 2017

Messy Money? | Six Tips To Sort Your Spending

Why is our money so messy? If you came to this post, it’s probably because, deep down, at some level, you think that you’re ‘no good with money’. But great financial behaviour is not a talent – it’s a series of things you can learn.

There’s a certain group of girls I identify with. The ones who are dazzled by new, shiny things. The ones who are always surprised by how much they’ve spent at the end of the month. The ones who get a certain bag/gadget/makeup palette in their head and can’t stop thinking about it.

Financial detail feels so cold, so dull, so impossible to understand. Money feels distant and abstract.

So you sail on without much control over what’s going on. Perhaps this works okay for months, or even years. But eventually, you’ll run up against some big purchase or important goal in life and realise that this approach leaves you powerless. Your money is a tool - and it’s up to you, and only you, to make it work for you.

I understand completely. That’s because I am one of those girls. I grew up in a typically British household where money was never talked about openly, and as I started out on being an adult, I was very uneducated about finances. They didn’t appeal to me at all.

But in the real world, that excuse doesn’t really cut it. Having married a financial advisor, I’ve learnt an awful lot since then – about good practice with money, about how to keep control of my resources, and about why it all matters. But not everyone has that expertise available for free at home. So, I thought I’d create a very simple post about some easy improvements anyone can make.

Instead of a long list full of joyless ‘money saving tips’ like never having a Starbucks again and trying to rope your friends into having clothes swapping parties, I thought I’d offer six quick hacks that anyone can use to stop overspending and start taking back control of the pennies and pounds. These are all easy, free, and they’ve worked for me.

Decide what you’ll pay for it before you see the price tag

Like everything on my list, this is so simple. But it works. At my heart, I’m the definition of an impulse buyer. I’ll see something, fall in love, and obsess about it until its mine. At this point, if you’re like me, you may be in danger of disregarding the cost because you ‘have to have it’.

One trick I’ve found that works well for me is to decide what the item is worth to me, before I look at the actual cost.

I’ll just take a moment to step away from the voice in my head that’s going ‘want want want’, to assess how much I think the item is worth, rationally. If you prefer, you can even think about it in terms of hours worked, if you know or can work out an hourly rate of pay for your job.

Then I take a look at the price tag. Usually, it’s more than I bargained for. But I’ve created a space, and a distance, to question the true value of an item to me before hitting that checkout button.

Wish list it out

This is another ‘distancing’ sort of trick that’s also worked really well for me. Each month, I create a Wish List on my phone. It’s just a big long list of everything non-essential that’s caught my eye.

My rule is that everything has to stay on this list for one month. If I still really want it at the end of the month, then I can buy it. But I’m always surprised by how many things I thought I desperately wanted that have lost their magic after sitting on that list for four weeks.

It works a treat for sifting out those impulsive spends and creating some thinking time about things that you think you ‘love’. I’m quite bad at saying no to myself sometimes, so instead of a ‘no’, this is a ‘maybe later…’.

This has been the single most powerful trick for me. It also allows you time to find the best possible deal on something you find you do actually want to buy.

Treat credit like fire

It took me a long time to understand that credit cards aren’t bad. Neither are they good. They’re a useful tool, but they depend entirely on the person using them. Used right, they can be a force for good – allowing you to budget, cushioning emergencies and upping your credit rating. But if your financial house is not in order, they can lure you onto the rocks.

The key to it all is ensuring you clear your balance each and every month. The only exception is if you have a 0% interest period, in which case you can use your credit card as a zero-cost ‘loan’, provided you know exactly when the interest-free period ends, and have budgeted to pay back the amount within that time.

If you can trust yourself to clear the balance, then you can look at getting a cash-back credit card, where you earn a small percentage back when using the card, and actually have them pay you! I'm always surprised by how many people don't understand how their card works or what an APR is and how it affects them.

Automate your savings and investments

This one is really a no-brainer, and so easy to set up. If you have good intentions with saving, but somehow at the end of every month you realise you haven’t done it, it’s a great idea to make your savings automatic.

This can simply be a case of setting up a standing order from your current account into your savings account each month on the day you get paid. Even if it’s only a small amount, you can always ‘top it up’ later in the month with a one off payment. Something is definitely better than nothing.

Another thing I absolutely love is the investment app ‘Moneybox’. This is a great little tool that makes investing easy. You choose a monthly amount, and the app invests for you. You select one of three profiles from low risk with lower returns, to high risk with greater potential gains. It strips out all the complication of investing and make it easy to build something. But the feature I really love?

You can set the app to auto round-up all the purchases you make on a card, and invest the amount. So, if you paid £1.80 for a coffee, the 20p would automagically go into your investments pot. It makes the whole thing quite painless.

And you can start from as little as £1 so there’s no savings barrier to overcome to use it. The best way to use it is to set a small monthly amount, plus the round-ups, and then occasional top ups. On the day before payday, I transfer spare cash from my current account into the investment pot as well. It adds up before you know it.

Make a budget and keep an eye on it

Massively simple, but something most people still don’t do. The absolute key to winning control of your money is to understand where it’s all going. You have to find a method that works for you. It can be as simple as an Excel spreadsheet. Or there are apps like Mint, that you can link up to all your credit and debit cards – they’ll show exactly how much you have been spending, and on what – and that can be a right eye-opener.

For me, the method that works is a list in OneNote, a tabbed notebook app that I can access across my phone, tablet and laptop. Each month, I note down a ‘projected’ budget. This includes all my bills and any planned expenses – anything from savings, to nights out to upcoming birthdays I need to buy a gift for.

Then, on another tab I have my ‘actual’ budget. This is a running list of everything I’ve spent. If it was planned, I add a P next to it, or a U for unplanned. As I always have my phone with me, it’s a quick way for me to keep an eye on what I’m spending, and how much of it is impulsive.

Have ‘no spend’ weeks

Its often the little things that add up everything month – the coffee at the train station, the magazine picked up on the way home - so another useful thing is to have ‘no-spend’ weeks set up in your calendar.

A week is manageable because its actually quite a small amount of time. Pick one week and challenge yourself not to spend a penny – you can even deliberately put your debit card in a drawer at home for that week, if it helps.

If you try to have one a month, the amount you save can really add up. I try to do a no-spend week right before payday. I plan ahead for it, so I have stuff at home to make lunches with, and I’ve made sure I have enough petrol in the car and things. Then go for it. At payday, all the spare cash left over in my account can be transferred to Moneybox or another savings account. Simple!

I hope those tips are useful. Gaining control of your money is really liberating! If you have any great tips, share them below!